Let’s Test Your Retirement Income Knowledge

Retirement Income Planning

 

People of all ages struggle with money because they are unknowingly focusing on the wrong things…

Don’t get me wrong… I’ve spent 16 years helping people with the mathematical aspect of money, and getting that right is crucial. However, most of the money “issues” I’ve seen come from people trying to solve mental, emotional, and behavioral problems with financial solutions and it just doesn’t work.

Success with money is no different than success with your physical health. You may have a great workout plan and diet given to you by a personal trainer, but it doesn’t guarantee the ideal body… If it did, we would all be reading this with perfectly chiseled 6-packs 😉

So, what does this have to financial success? Just like physical fitness the How-To’s of money really aren’t that hard… The real answers come from figuring out WHY we don’t do the How-To’s we know we should be doing.

External financial success comes from doing the internal work to identify and become aware of the beliefs, patterns, and behaviors that stop us from doing the things we KNOW we should be doing.

I would love nothing more than to see an integrated internal/external model of money become the standard curriculum that we learn and teach become the new normal…

You know… I dedicate my life to this mission because I’ve seen the physical stress, divorce, depression, and crushed dreams that getting this wrong can cause.

Let’s all start learning new skills and stop sabotaging our relationship with money. Let’s use money as a tool to create a meaningful and fulfilling life… before, during and after retirement. Which leads us to…

Testing Your Retirement Income Knowledge

I don’t know about you, but when I was a kid in grade school, if I brought home a test score of 47 out of 100, it didn’t end very well for me. Let’s just say, Southern Mothers are tough to please! And, at a minimum, my “privileges” would be SEVERELY limited until I got my grades back up…

Last year, close to three out of four people ages 60 to 74 failed a 38-question quiz on retirement income topics administered by the American College of Financial Services.

The people taking the quiz had at least $100,000 in household assets, excluding their primary residence, so it would be easy to assume they were pretty knowledgeable about savings and investments, right? Not so by a long shot. Their average score? 47 percent!

Just 5 percent of the 1,224 participants scored a B — 80 percent — or higher.

While 55 percent were extremely confident they would have enough money to live comfortably in retirement, only 42 percent of the extremely confident men and 24 percent of the extremely confident women passed the test – scoring at least a C minus – 65 percent – or higher.

Those scores point out one thing; people in all walks of life have a desperate need to increase their retirement income and planning knowledge. So, if you’re up to it, let’s test your retirement income knowledge…

Here are 10 of the easiest retirement income questions on the test:

  1. A 65-year-old man has an average life expectancy of approximately an additional:
  1. 10 years
  2. 15 years
  3. 20 years
  4. 25 years
  5. I don’t know
  1. A single person who is likely to live to age 90 is generally going to be better off claiming Social Security benefits at age…
  1. 62
  2. 66
  3. 70
  4. 75
  5. I don’t know
  1. Social Security workers’ monthly benefits are increased for each year that benefits are deferred from age 62 to age…
  1. 65
  2. 66
  3. 70
  4. 75
  5. I don’t know
  1. Traditional Medicare will cover which of the following medical expenses?
  1. Routine dental care
  2. Wellness Visits
  3. Hearing Aids
  4. All of the above
  5. I don’t know
  1. True or false: The total out of pocket medical costs for married couples in retirement is relatively consistent from retiree to retiree.
  1. True
  2. False
  1. Who pays for the majority of long-term care expenses?
  1. Medicare
  2. Private Payment by Individuals
  3. Medicaid
  4. Insurance Purchased by Individuals
  5. Don’t know
  1. Who provides the majority of long-term care?
  1. Family members
  2. Nursing Homes
  3. Assisted living facilities
  4. Hospitals
  5. Don’t know
  1. Which one of the following statements concerning the federal income tax treatment of distributions to a 65-year-old retiree is true?
  1. All distributions from a Roth IRA that has been maintained for more than five years will be tax-free
  2. All distributions from a traditional IRA created with tax-deductible contributions will be taxed as long-term capital gains
  3. Distributions from a traditional IRA prior to age 70 1/2 will be subject to an additional 10% penalty tax
  4. Don’t know
  1. If a participant is given the choice of a lump sum or a life annuity from a company-sponsored retirement plan, the life annuity is likely to be the better choice if the participant is most concerned about…
  1. Leaving money to children
  2. Having enough money to meet basic expenses
  3. Having the flexibility to meet changing income needs
  4. Getting an increasing stream of income over retirement
  5. Don’t know
  1.  Which of the following types of long-term bonds typically has the highest yield?
  1. AAA-rated corporate bonds
  2. B-rated corporate bonds
  3. Treasury bonds
  4. Don’t know

So, how do you think you did? Not knowing the correct answers can cause you to make costly mistakes.

Take a minute to leave a comment and let me know your score!

And, be sure to share this quiz with your family members and friends too; a few may discover they could benefit from working with a Retirement Planning Advisor who is also RICP® certified.

To provide maximum value and the best service to my retirement planning clients, I earned my RICP® certification. And, if you didn’t score at least 70% on this mini quiz – we should talk soon! 

(RICP® stands for Retirement Income Certified Professional – it is a professional designation for experienced financial professionals who are experts in retirement income planning. These professionals help retirees and near-retirees develop a plan for managing and using the assets they have accumulated for retirement to live within a realistic budget and not run out of money prematurely.)

Retirement Income Knowledge Quiz Answers:

Question 1 –

The correct answer is C. A man reaching age 65 today can expect to live, on average, until age 84.3, according to the Social Security Administration.

Question 2 –

The correct answer is C. One factor in determining when to choose Social Security benefits is life expectancy because this affects total benefits provided under the system. Delaying to age 70 is a good idea if the higher benefit is paid for a long time—as in this case. This is tricky though, as most people don’t know how long they will live. And for a married couple the larger benefit is paid for the joint lifetime—so the couple’s joint life expectancy should be considered when thinking about this question. Another way to look at the claiming question is how can you improve your retirement security. Deferring Social Security can do this as deferring “buys” more lifetime income that will receive inflation protection.

Question 3 –

The correct answer is C. Social Security worker’s benefits can be claimed as early as age 62, but benefits continue to increase for each year of deferral up to age 70. Benefits do not increase after that, so there is no incentive to defer workers benefits past age 70. Spousal benefits and widow(er) benefits do not benefit from increases past full retirement age—so there is no reason to defer these benefits past full retirement age (age 66 to age 67 depending upon date of birth).

Question 4 –

The correct answer is B. Traditional Medicare covers many medical services including wellness visits. However, there are services that can be quite costly for seniors that are not covered including dental care and hearing aids. Planning for these expenses is an important part of planning. Beneficiaries have the option to elect out of traditional Medicare in favor of Medicare Advantaged plans. These programs sometimes include additional services like dental coverage, but in exchange the beneficiary will have a more limited network of health care providers.

Question 5 –

The correct answer is B. Medical expenses are one of the big unknowns in planning for retirement needs, and costs can vary a tremendous amount. Having comprehensive insurance coverage through a Medicare Supplement policy or Medicare Advantage is one way to make the total out-of-pocket costs more predictable.

Question 6 –

The correct answer is C. Many don’t realize that the majority of institutional care is paid for by Medicaid. Medicaid only pays for care once an individual has essentially run out of assets, and care is limited to those institutions that take Medicaid and have beds available. This is a public policy concern as well, as the Medicaid system is really taxed by these costs—which are likely to continue to grow as baby boomers age.

Question 7 –

The correct answer is A. Most long-term care services are provided outside of an institutional setting by family members. Family caregivers undergo a tremendous amount of stress as they manage caregiving responsibilities along with work and other family responsibilities.

Question 8 –

The correct answer is A. All distributions from a Roth IRA for an individual who is at least age 59½ and has had the account for 5 years will be tax-free.

Question 9 –

The correct answer is B. Choosing the life annuity provides a specified benefit amount for life, essentially guaranteeing income to meet basic needs. On the flip-side, it eliminates the possibility of growth in income, flexibility to change strategies, or leaving the asset to children. The annuity provides certainty and simplicity. Even though the lump sum may better meet these other goals, it presupposes that the retiree has the skill to make the right investment decisions and understands all the factors relevant in choosing how much can be withdrawn each year.

Question 10 –

The correct answer is B. Bonds provide greater returns as the risk increases. Treasury bonds are backed by the Federal Government and AAA rated corporate bonds have been determined by the rating agencies to have a low probability of default by the corporate entity. As the ratings for corporate bonds get lower, the risk of default increases and the return to compensate investors for taking that risk increases.

If you’d like to take the official quiz to see how well you do with the other questions – you can find it on The American College – New York Life – Center For Retirement website.

This is your retirement. And, the reality of it is, unless you are a retirement planning professional, it’s hard to know all of the answers.

Working closely with a qualified Advisor is the best way to expertly examine all of your retirement possibilities to discover what are the best, most viable options for you.

As an independent financial planner and retirement coach, I enjoy working closely with individuals and couples to help them identify and pursue their lifelong objectives. If you have questions about your financial situation, desire advice or education to have a happier and more fulfilling retirement, or have yet to get started planning for your future, I’d be happy to help. Give me a call at 770.249.7424 or email me today at beau@richlifeadvisors.com. I look forward to hearing from you.

About Beau Henderson

Beau Henderson is a financial advisor, author, coach, radio personality, and CEO of RichLife Advisors. He has helped over 3,000 clients to not just improve their relationship with money, but to live the life of their dreams.

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RichLife Advisors, LLC provides investment advisory services through Fiduciary Capital, Inc. Beau Henderson is a licensed life insurance professional in GA, SC, TX, CA, IL, KY, OH, MI, PA, MD, and NY.

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